Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

5. Inventory

Inventory Errors

Financial Accounting

5. Inventory

Inventory Errors

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Multiple Choice

Excess inventory results in all of the following except:

Increased storage costs

Improved cash flow

Potential for inventory write-downs

Higher risk of obsolescence

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Verified step by step guidance

Understand the concept of excess inventory: Excess inventory refers to having more stock than is needed to meet current demand. This can lead to various financial and operational challenges for a business.

Analyze the options provided in the question: Each option represents a potential consequence of excess inventory. Evaluate whether each consequence aligns with the characteristics of excess inventory.

Option 1: Increased storage costs - Excess inventory requires additional space for storage, which increases costs such as rent, utilities, and insurance. This is a valid consequence of excess inventory.

Option 3: Potential for inventory write-downs - Excess inventory may become outdated or unsellable, leading to write-downs or losses in the value of inventory. This is another valid consequence.

Option 4: Higher risk of obsolescence - Excess inventory increases the likelihood that products will become obsolete due to changes in market demand or technology. This is also a valid consequence. The correct answer is 'Improved cash flow,' as excess inventory ties up cash in unsold goods, reducing cash flow rather than improving it.